It’s not the corporations; it’s the CEO class that runs them

I’ve written about this before, but the thoughts have usually been embedded in another article. I want to pull concept out on its own. The question: What is a modern corporation, and what is its relation to its owners in practice, the CEO class?

(The source of the following text is here; the subject of the original article was, how should we understand why oil corporations are taking the planet down? What is driving them? The answer, of course, is their CEO class, which led to the following reflections. I’ve reparagraphed this excerpt, since our columns are now wider.)

It’s not the corporations; it’s the people who run them

… I want to make a few points about corporations. The points may be obvious, but it’s useful to keep them in mind. They are:

(1) Corporations are not people, and they don’t have ideas or will. They are empty vessels. If you took a neutron bomb to the home office of MegaCorp.com and let it rip, the building, filled to the brim with inventory and IP, would be empty of humans and a dead thing. You could wait for weeks for the offices to act; they wouldn’t.

(2) This is especially true today, since the corporation now serves a different function than it was designed for. At first, a corporation served to make its stockholders moderately wealthy — or at least wealthier.

Modern corporations serve one function only — to make the CEO class obscenely rich, even at the expense (that’s a Bain link) of the corporation itself (yes you, Carly Fiorina). Thanks to the incentives in the post-Reagan tax code and the capture of Boards of Directors by the CEOs themselves, controlling the modern corporation — being the Jack Welsh of your world — is a straight path to big-league power and wealth. You’ve arrived.

Corporations loot the nation.
CEOs loot the corporation.
CEOs then buy everything on earth they want or need.

In the western world, the corporate controlling class lives higher than the kings and presidents who serve them. That’s not invective, but a simple fact. Call it my Flow-of-Funds Rule. Money flows right through the corp into CEO pockets, just like warm beer flows through you on a night of heavy drinking. Your body retains only what it needs. The receptacle gets the rest.

(3) Thus the modern corporation is no more than a power-extender for its hosts, the CEO, CFO, COO and so on, who use it to feed on all the wealth of the world. A perfect image of the relationship between CEO and corp is Ripley and the powerloader from the film Aliens:

Still in his whites from this morning’s tennis match, he’s giving a personal tour of his Sag Harbor estate, barreling at 30 miles per hour through the vast forest of scrubby pines and soft moss of its gated grounds.

“Beautiful nature here!” A blur of deer goes by, and the trees break to reveal the summer sun glinting off a grassy lagoon. Greene slows by its shore.

“This is our swan pond, and this is our private beach,” he says, gesturing toward a slip of white sand encircling the edge of the North Haven Peninsula. “It goes all the way to the ferry. Three thousand feet of beach,” he adds, a smile spreading across his tanned face. …

“I’ve got a huge, huge position in mortgage-backed securities,” he says. “I started accumulating them in 2009, when the market was really down and things were really scary.” That’s also when he picked up this property for around $40 million (half the 2007 listing price), which he and his wife have christened “Greene Haven.”

“I wish we could spend more time here,” he says. “Honestly, we have so many great homes.”

This is why they exist, what they live for. This is victory, what is good in life. The purpose of the powerloader is to extend its master’s reach. The purpose of the corporation, the same. Ask yourself — if the CEO of Chevron could triple his personal wealth in a day by burning the corp to the ground and salting its earth, would he do it?

Why would he not?

This is the modern corporation. As I wrote above — Money flows right through the corp into CEO pockets, just like warm beer flows through you on a night of heavy drinking. Your body retains only what it needs. The receptacle gets the rest.

Don’t think of a corporation as acting. Think of its CEO as acting through the corporation. Thanks to the Reagan Era tax system — and the tax system of every era since, Democratic and Republican — it’s more profitable for a CEO to loot his or her corp than to plow the corporation’s money back into it, as used to occur.

This is a fundamental truth, one I frequently refer to. This is the post that I will point to in the future when noting that fact. Welcome to the modern world. This is why we are ruled by barons. There’s no other reason.

(Update: As a perfect example of what I’m talking about, read this comment by judybrowni. Thanks for posting it.)